The Department of Energy’s (DOE) Advanced Research Projects Agency-Energy (ARPA-E) is a program designed to fund high-risk, high-reward projects that the private sector would not embark upon on its own. ARPA-E has as its mission reducing energy imports, increasing energy efficiency, and reducing energy-related emissions, including greenhouse gases. The program is meant to “focus on creative ‘out-of-the-box’ transformational energy research that industry by itself cannot or will not support due to its high risk but where success would provide dramatic benefits for the nation.”
The House Committee on Science, Space and Technology, however, held a hearing that raised serious concerns with the program.
Indeed, the committee’s findings merit further discussion on the role of government research and development and the ability of the private sector to tap into that research.
Congressman Paul Broun’s (R–GA) opening remarks highlighted problems with ARPA-E identified by the Government Accountability Office (GAO), the Department of Energy’s Inspector General (DOE IG), and the Science, Space, and Technology committee staff. The most glaring and concerning findings highlighted by Broun were:
Of the 44 small- and medium- sized companies that received an ARPA-E award, GAO found that 18 had previously received private sector investment for a similar technology. GAO found that 12 of the 18 companies it identified as having received private sector funding prior to their ARPA-E award planned to use ARPA-E funding to either advance or accelerate prior-funded work.
Committee Staff were able to identify five additional companies that received private sector funding prior to their ARPA-E award.
Another thing that taxpayer money should not be used for is “meetings with bankers to raise capital” and a “fee to appear on a local television show.” The DOE IG noted in its report that these two tasks were cited as an allowable cost by ARPA-E under its Technology Transfer and Outreach policy. ARPA-E originally argued that such spending should be allowed despite the DOE IG’s concerns. Just yesterday, however, ARPA-E provided an updated technology transfer policy that is now silent on the appropriateness of this type of spending.
Looks Can Be Deceiving When It Comes to Government Investment
While the ARPA-E program has bipartisan support, a thorough review and more scrutiny of the projects that ARPA-E funds are in order for it to become successful. There is no justification for venture-capitalist-funded projects to receive awards for game-changing research and development projects. The fact is that the private sector is willing to invest in many of these projects. Using taxpayer money simply offsets the private investment.
Of course, this doesn’t stop politicians from supporting such projects. In fact, it is almost as if they see private money as a way to justify taxpayer support. This perhaps increases the likelihood of seeing some return on the investment, which then gives credibility to expand spending further. This has been a constant drum beat in President Obama’s pitch for clean energy investments and, most recently (although inaccurate), his statement on hydraulic fracturing for natural gas. The President is trying to justify more energy spending based on the perceived success of the government’s investment in fracking.
So it seems that the best way to ensure that government spending becomes a success in the eyes of politicians is to invest taxpayer funds in technologies or projects that already have private support. This creates the impression that government helped bring these technologies into the marketplace. But that’s not the mission of ARPA-E, nor should it be the role of the federal government’s research in energy.
When the Market Talks, ARPA-E Should Listen
Then there are those ideas and technologies that truly cannot get private investment. In most cases, this is probably for good reason. The reality is that the market is very good place to determine the merit of an investment. If a project cannot find private support, it may well be that it does not deserve it—e.g., Solyndra. And a lack of private investors alone does not justify using taxpayer money to support a project. Indeed, those technologies that lose private financing as they move closer to commercialization are likely the worst bets for taxpayer money, since professional investors have already determined them to be losers.
That is why the approach to technology development that seems to be driving ARPA-E is so troubling. They are at least in part engaging in the part of the process that is least likely to succeed. Carrying technology from the research and development stage through to commercialization should be a private endeavor. To the extent that the government supports energy research, it should be much earlier in the process.
Congress should ultimately look to restructure the entire DOE, looking to how ARPA-E is supposed to be structured as a model. A more legitimate role of government is to conduct the basic research that the private sector would not undertake and create a system to allow the private sector, using their own funds, to tap into that research and commercialize it if they see an opportunity to do so.
Before we can get there, however, Congress needs to hold ARPA-E accountable to its mission and intended purpose. More scrutiny is necessary to ensure that ARPA-E is not funding projects already receiving private funding or using technicalities to justify those grants. Confining ARPA-E to its mission is critical to the program’s success and could serve as a model for how DOE’s research programs could be restructured.
Nicolas Loris is a Policy Analyst at The Heritage Foundation . http://www.heritage.org/ Roe Institute for Economic Policy Studies. Loris researches and writes about energy, environment and regulation issues such as the economic impacts of climate change legislation, a free market approach to nuclear energy and the effects of environmental policy on energy prices and the economy.